No matter what industry, the evolution of a business typically follows a predictable path:
Step 1: The founder identifies a new way to solve a customer problem, resulting in an innovation.
Step 2: The company experiences a surge in revenue as customers embrace the advance.
Step 3: As the company grows, the number and impact of new innovations decreases, and revenues and margins tend to stabilize.
Unfortunately, in most industries, what happens next is often painful. While mature companies focus on delivery, a smaller, more nimble company comes along and develops new technologies, processes, or models that turn the industry on its head. You do not have to look too far to find evidence of this cycle in action: companies like Sony, Kodak, and Dell are all prime examples. At one time, each of these companies was considered an innovator, but they all saw their businesses erode due to outside innovation.
To determine whether your industry is at risk, consider the following questions:
- Do you operate in an industry where all of the competitors tend to look alike?
- Have participants been doing things the same way for years?
- Have you experienced pricing or margin pressure unrelated to overall economic conditions?
If you answered “yes” to any of these questions, then your industry may be ripe for disruption. The most important question is whether you will be on the giving or the receiving end.
If your company tends to compartmentalize the R&D process and lacks a holistic approach to innovation, then the odds of winning the innovation battle are against you. Studies have shown that truly innovative companies make innovation a part of their entire culture, involving people throughout the organization. Additionally, when interviewing potential employees, they look for candidates who have a track record of innovation.
Additionally, when assigning responsibilities, they often require employees to devote up to 15 percent of their total time to activities focused on innovation. Importantly, they put these employees in small, nimble teams to avoid the bureaucratic processes that typically take hold in larger groups. Finally, they align performance appraisal and reward systems with overall innovation objectives.
Perhaps most importantly, successful innovators understand that old habits can make it incredibly difficult for insiders to look at existing products, services, or processes from a different perspective. As a result, they actively seek the advice of outsiders to help challenge the status quo. By using skills such as association, where business models or processes from other unrelated industries are applied to the company in question, outsiders can help insiders achieve truly remarkable breakthroughs that create sustainable business advantages.